It is necessary to introduce elements of market competition into the sphere of public utilities
Why, in fact, should not tariffs for housing and communal services increase? Just because we, payers, naturally don’t like it?
Well, you know, the economy doesn’t work that way so that only what we want happens in it. And such miracles do not happen so that prices for everything and everyone rise, but there is no increase in tariffs for utilities. But does this mean that no questions should arise regarding how utility tariffs are regulated? Of course not. There are questions, and there are plenty of them.
Why, in fact, should not tariffs for housing and communal services increase? Just because we, payers, naturally don’t like it?
Well, you know, the economy doesn’t work that way so that only what we want happens in it. And such miracles do not happen so that prices for everything and everyone rise, but there is no increase in tariffs for utilities. But does this mean that no questions should arise regarding how utility tariffs are regulated? Of course not. There are questions, and there are plenty of them.
But first, let’s talk about what has already happened in terms of tariff increases. Since July 1, 2024, the total payment of citizens for utilities throughout the country has increased by 9.8%. In August we will already pay in a new way. This does not mean that in all regions and in all municipalities and in all public utilities separately there was such an increase in tariffs. Somewhere more, somewhere less. But the national average for communal services actually increased by almost 10%. In Moscow, by the way, indexation will be 11%. This, of course, is a sensitive increase in tariffs for the population.
And somehow it is not very reassuring that in 2023 utility rates were not indexed at all. Yes, yes, that happened. Although, I suppose, many will be surprised, like «this can't be.» It can. They really were not indexed for a year. But the truth is that in 2022 they were indexed twice: from July 1 by 4%, from December 1 by 9%. More than 13% growth in rates in a year (indices must be multiplied) is very significant! And this is significantly higher than the inflation rate in 2022, which then amounted to 11.9%. Therefore, it is not surprising that it was decided not to index in 2023.
But here we are already in 2024, and tariff indexation is again outpacing inflation. No, in fact, by the end of the year it can also be close to 9–10%. But still, at the end of June 2024, inflation in ready-made terms is about 9%, and this is still less than the average figure to which utility tariffs were indexed.
When people ask how economically justified the indexation of housing and communal services tariffs is, a positive answer looks quite convincing. Resource supplying organizations always provide such information on the growth of their costs that there is no doubt: it is necessary to index! But here is the problem: these organizations, as a rule, are monopolists, albeit in local markets. And they are monopolists not only because no one except them will provide resources. For example, for obvious reasons, there are no two “water utilities” in one town. They also have a monopoly on the information provided to justify the costs of their activities. Yes, of course, it is possible and necessary to check such information and conduct an appropriate audit. However, the question of the justification for raising tariffs still remains.
It also remains because the very mechanism for making decisions on indexation leads rather to higher tariffs than could be the case.
It works something like this. Imagine that you represent one of the resource-saving organizations, for example, a heating network. You do not work at market rates, but at rates regulated by state and local authorities. Moreover, you understand perfectly well from current practice that your tariff application will most likely be reduced (this is the task of the regulatory authorities). In this case, with an economically justified indexation of tariffs by 5%, you will never ask for them, but ask to increase tariffs by 10% (according to the principle “ask for more — they will give less”).
What does the regulator do when it receives your proposal justifying the need for a 10% increase in tariffs? He, of course, will never agree to this 10%, but he will give, say, a 7% indexation and make an appropriate decision. And he will accept it with a sense of accomplishment. They say that they helped both the resource workers and the residents.
So it turns out: the resource supplying organization is happy, because instead of the economically justified indexation of tariffs by 5%, a 7 percent increase was received. The regulator is also happy: he saved people as much as 3% — the result is obvious. In general, everyone is happy, but tariffs are rising quickly. Therefore, there are still dissatisfied people — the population.
Yes, what is happening today is an accelerated growth of utility tariffs. The proof is simple: the current parameters of tariff indexation were determined by the government in the fall of 2023, but a year before that (also when the three-year federal budget was adopted), it was planned that tariffs should increase by 6.3% from July 1, 2024. In fact, the increase turned out to be significantly higher — 9.8%
As for the plans for indexing utility tariffs for 2025 (also from July 1), they remain the same for now — an increase of 5.7%. But, frankly speaking, it is hard to believe that these plans will be fulfilled. The reason is simple: today, inflation is accelerating quite rapidly. The initial official inflation plans for 2024 were in the range of 4–4.5%, for 2025 — 4%. It was with such inflation plans that the parameters for indexing the total utility payment of citizens were established. But inflation “overflowed its banks”. It, accumulated since the beginning of the year, has almost reached 4% in six months. That is, they hoped that such inflation would be by the end of the year, but by the end of only 6 months, it has already reached the target annual level. Naturally, by the end of 2024, inflation will be significantly higher than originally hoped for.
Inflation is higher, the costs of the same resource supplying organizations are also much higher, which means that the upcoming indexation of utility tariffs will most likely also exceed the initial target benchmarks.
By the way, the rise in utility tariffs itself has a strong impact on inflation and spurs it. This is a vicious circle: tariffs are rising because inflation is accelerating, and prices are rising because utility tariffs are rising.
The problem is that there are no simple solutions here. Although it would seem to be much simpler: don’t index tariffs like last year, and that’s it! No, it won't work that way. You can, of course, try, but you shouldn’t — the result will only get worse. The provision of public services itself may begin to crumble. There will be no funds for cleaning areas, repairing houses, fixing plumbing… No, simply resetting the indexation is not a solution. But creating a mechanism in which competition will force the provision of better and cheaper services is a challenge for government departments. Introducing elements of competition in the field of public services is a complex task, and we still need to work and work on its solution (for example, through the mechanism of concessions). But this problem will still have to be solved sooner or later. All the problems in the housing and communal services sector cannot be solved by simply periodically increasing tariffs.